SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file No.
0-18899
Tanknology Environmental, Inc.
(Exact name of registrant as specified in its charter)
Texas 76-0284783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5225 Hollister 77040-6294
Houston, Texas (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (713) 690-8265
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period than the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $0.01 per share,
outstanding as of November 1, 1996 was 14,237,012.
Page 1
Index to Exhibits
appears on page 14
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TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
INDEX
Page(s)
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Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of
September 30, 1996 (unaudited) and
December 31, 1995...................................... 3
Condensed Consolidated Statement of Operations for
the Three and Nine Months Ended September 30, 1996
and 1995 (unaudited)................................... 4
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995
(unaudited)............................................ 5
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 14
Item 4. Submission of Matters to a Vote of Security Holders........ 14
Item 6. Exhibits and Reports on Form 8-K........................... 14
PART III. SIGNATURES......................................................... 15
</TABLE>
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.........................................................$ 15,790,020 $ 14,967,107
Short-term investments............................................................ 2,132,727 3,694,873
Accounts receivable, net.......................................................... 448,521 5,023,019
Inventories, net.................................................................. 38,086 350,275
Current deferred tax asset........................................................ 153,437 576,002
Income tax receivable ............................................................ 2,879,562 2,106,678
Other current assets.............................................................. 310,796 789,627
----------------- ------------------
Total current assets.......................................................... 21,753,149 27,507,581
PROPERTY AND EQUIPMENT, NET.......................................................... 4,396,234 9,049,510
INTANGIBLE ASSETS, LESS ACCUMULATED AMORTIZATION..................................... 2,546,471 3,765,400
DEFERRED TAX ASSET................................................................... 972,280 872,610
ASSETS HELD FOR SALE................................................................. 1,048,454 --
NET ASSETS OF DISCONTINUED OPERATIONS AND
OTHER ASSETS.................................................................. 9,724,194 1,081,509
----------------- ------------------
Total assets......................................................................$ 40,440,782 $ 42,276,610
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable.....................................................................$ -- $ 28,939
Accounts payable.................................................................. 143,013 1,009,814
Accrued liabilities............................................................... 336,033 1,552,564
----------------- ------------------
Total current liabilities..................................................... 479,046 2,591,317
DEFERRED INCOME...................................................................... -- 20,160
----------------- ------------------
Total liabilities............................................................. 479,046 2,611,477
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; 10,000,000 shares authorized;
no shares issued and outstanding.............................................. -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
15,192,237 and 15,185,237 shares issued at September 30, 1996 and
December 31, 1995, respectively .............................................. 151,922 151,852
Additional paid-in capital........................................................ 33,109,657 33,096,987
Retained earnings................................................................. 10,887,828 10,603,965
Treasury stock at cost, 955,225 shares, at September 30, 1996 and
December 31, 1995 ............................................................ (4,187,671) (4,187,671)
----------------- ------------------
Total shareholders' equity........................................................ 39,961,736 39,665,133
----------------- ------------------
Total liabilities and shareholders' equity........................................$ 40,440,782 $ 42,276,610
================= ==================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
1995 1995
1996 (restated) 1996 (restated)
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES............................................. $ 512,938 $ 609,595 $ 1,617,661 $ 1,810,830
COST OF SERVICES..................................... 390,202 353,205 1,068,065 1,075,944
---------------- --------------- ---------------- ----------------
Gross profit.................................... 122,736 256,390 549,596 734,886
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES........................................ 894,670 736,136 2,642,676 2,464,406
---------------- --------------- ---------------- ----------------
Loss from operations............................ (771,934) (479,746) (2,093,080) (1,729,520)
OTHER INCOME......................................... 224,511 196,258 714,142 532,535
---------------- --------------- ---------------- ----------------
Loss from continuing operations
before income taxes.................... (547,423) (283,488) (1,378,938) (1,196,985)
INCOME TAX BENEFIT................................... (235,138) (74,166) (670,381) (459,968)
---------------- --------------- ---------------- ----------------
Loss from continuing operations............. (312,285) (209,322) (708,557) (737,017)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS...................................... 716,446 574,821 992,420 (4,274,339)
---------------- --------------- ---------------- ----------------
Net income (loss)........................... $ 404,161 $ 365,499 $ 283,863 $ (5,011,356)
================ =============== ================ ================
Loss per share from continuing (0.05)
operations...................................... $ (0.02) $ (0.01) $ (0.05) $
Earnings (loss) per share from discontinued
operations...................................... 0.05 0.04 0.07 (0.30)
---------------- --------------- ---------------- ----------------
NET EARNINGS (LOSS) PER SHARE........................ $ 0.03 $ 0.03 $ 0.02 $ (0.35)
================ =============== ================ ================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING..................................... 14,237,012 14,230,012 14,237,012 14,230,012
================ =============== ================ ================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ 283,863 $ (5,011,356)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Provision for disposition of discontinued operations........ -- 6,375,591
Depreciation and amortization............................... 2,285,911 2,855,789
Net amortization of premiums and discounts on short-
term investments......................................... (79,783) (168,697)
Gain on disposal of assets.................................. (23,027) --
Deferred income taxes....................................... 322,895 (32,869)
Deferred income............................................. (15,120) (15,120)
Change in assets and liabilities:
Decrease in accounts receivable, net..................... 154,875 1,692,356
Increase in costs and estimated earnings
in excess of billings on uncompleted contracts......... -- (891,707)
Decrease in inventories, net............................. 61,076 1,116,062
Increase in income tax receivable........................ (772,884) (2,146,621)
Increase in other current assets......................... (268,396) (406,649)
Increase in net assets of ESI............................ (1,014,631) --
Increase in accounts payable and accrued
liabilities............................................ 77,852 417,122
-------------- --------------
Total adjustments.................................... 728,768 8,795,257
-------------- --------------
Net cash provided by operating activities............ 1,012,631 3,783,901
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................................. (1,933,336) (1,107,369)
Proceeds from the sale of assets.................................. 175,891 --
Purchase of short-term investments................................ (3,291,265) (11,935,823)
Proceeds from maturities of short-term investments................ 4,933,194 13,167,175
Increase in intangible assets..................................... (44,763) (131,100)
-------------- --------------
Net cash used in investing activities................ (160,279) (7,117)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable............................... (28,939) (104,677)
-------------- --------------
Net cash used in financing activities................ (28,939) (104,677)
-------------- --------------
Net increase in cash and cash equivalents............ 823,413 3,672,107
-------------- --------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD............................................................ 14,967,107 6,249,636
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 15,790,520 $ 9,921,743
============== ==============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The unaudited condensed consolidated financial statements include the
accounts of Tanknology Environmental, Inc. and its wholly owned subsidiaries
(the "Company"). The unaudited condensed consolidated financial statements have
been prepared consistent with the accounting policies reflected in the audited
consolidated financial statements included in the Company's Form 10-K filed with
the Securities and Exchange Commission on March 27, 1996, and should be read in
conjunction therewith.
In management's opinion, the unaudited condensed consolidated financial
statements include all adjustments necessary for a fair presentation of the
Company's consolidated financial position at September 30, 1996, the
consolidated results of its operations for the three-month and nine-month
periods ended September 30, 1996 and 1995, and its consolidated cash flows for
the nine-month periods ended September 30, 1996 and 1995. All such adjustments
are of a normal recurring nature. Interim results are not necessarily indicative
of results for a full year.
Principles of Consolidation
The condensed consolidated financial statements of the Company include the
accounts of Tanknology Environmental, Inc. and its wholly owned subsidiaries.
All material intercompany transactions and balances have been eliminated in
consolidation. Prior year amounts in the condensed consolidated statement of
operations and related notes thereto have been restated to reflect the Company's
subsidiaries of Mankoff, Inc. ("Mankoff"), Engineered Systems, Inc. ("ESI"), and
("the Tank Testing Group") that consists of Tanknology Corporation
International, including its cathodic protection division d/b/a Tanknology
Cathodic Protection, USTMAN Industries, Inc., and Tanknology Canada (1988), Inc.
as discontinued operations as discussed in Note 2. All amounts related to the
statement of operations are from continuing operations unless otherwise
indicated.
Short-Term Investments
Short-term investments are those with maturities greater than three months
when purchased. The Company has classified all investments as
available-for-sale. When purchased, securities are recorded at cost and adjusted
for unrealized holding gains and losses due to market fluctuations. Gains and
losses are recorded upon the sales of short-term investments based upon the
specific identification method.
Income Taxes
The provision for income taxes includes federal, foreign, state, and local
income taxes currently payable and those deferred because of temporary
differences between the financial statements and tax bases of assets and
liabilities. The difference between the statutory tax rate and the rate
reflected on the statement of operations for each period presented, is due to
the nondeductibility of certain expenses.
6
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TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
Earnings Per Common Share
Primary earnings per share is based on the weighted average number of
shares outstanding during the period after consideration of the dilutive effect
of stock options or warrants reflected under the treasury stock method. Fully
diluted earnings per share are not presented because such amounts would be the
same as amounts computed for primary earnings per share.
New Accounting Standards
Effective January 1, 1996, the Company adopted SFAS No. 121, entitled
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of." The effect of this adoption was not material to the Company's
financial position or results of operations.
The Financial Accounting Standards Board issued SFAS No. 123, entitled
"Accounting for Stock- Based Compensation," in October 1995. Effective January
1, 1996, the Company has elected to adopt the disclosure requirements of SFAS
No. 123.
2. DISCONTINUED OPERATIONS:
On October 25, 1996, the Company disposed of certain assets and
liabilities of the Tank Testing Group, which consisted of the stock of the
following wholly owned subsidiaries, Tanknology Corporation International,
including its cathodic protection division d/b/a Tanknology Cathodic Protection,
USTMAN Industries, Inc., and Tanknology Canada (1988), Inc. to NDE Environmental
Corporation ("NDE"), a Delaware corporation, an unrelated third party.
The disposition of the Tank Testing Group was made pursuant to a Stock
Purchase Agreement (the "Agreement") between the Company and NDE dated October
7, 1996. The terms of the Agreement were determined by arm's length negotiation
between the Company and NDE.
The Company disposed of the Tank Testing Group in consideration of the
receipt of $12,000,000 in cash. The agreement calls for adjustments to the
purchase price of up to $1,000,000 for working capital deficiencies and of up to
$1,250,000 for liabilities relating to services performed by the Tank Testing
Group prior to October 25, 1996. Such consideration was determined following
negotiation between the parties as to the value of the assets. The Company will
report a gain on this sale during the fourth quarter of 1996.
Revenues for the Tank Testing Group for the three and nine months ended
September 30, 1996, totaled $6,372,000 and $17,106,000, respectively. Income
from operations for the Tank Testing Group totaled $1,229,000 and $1,951,000,
respectively, for the three and nine months ended September 30, 1996. Net income
for the Tank Testing Group totaled $716,000 and $992,000, respectively, for the
three and nine months ended September 30, 1996. Net assets of the Tank Testing
Group were $7,966,000 at September 30, 1996.
During 1995, the Board of Directors of the Company elected to discontinue
operations at its Mankoff and ESI subsidiaries and put the assets of the
businesses up for sale.
7
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TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
Mankoff's operations were discontinued as of June 30, 1995. Mankoff's
revenues were $6,353,000 for the year ended December 31, 1995. Mankoff was sold
on December 21, 1995, for $1,500,000 in cash and two twenty-four month
non-interest bearing notes receivable totaling $805,000. The purchaser has also
assumed the performance of all contract obligations of Mankoff. A provision for
loss on disposition of Mankoff of $3,610,000 net of an income tax benefit of
$1,892,000 has been recorded as a result of the sale.
ESI's operations were discontinued as of December 31, 1995. ESI's revenues
were $3,718,000, for the year ended December 31, 1995. A provision for estimated
loss on disposition of ESI of $3,715,000, including write-off of goodwill and
estimated losses through the expected date of sale, has been recorded net of an
income tax benefit of $1,914,000. The amounts the Company will ultimately
realize could differ materially from the amounts assumed in arriving at the
estimated loss from discontinued operations. The remaining net assets of ESI
principally consist of accounts receivable, inventories and property, plant and
equipment offset by accrued liabilities including estimated losses through the
expected date of sale. The Company will fulfill all contract obligations of ESI
unless a buyer of the business assumes performance of its contracts. ESI's
operating losses for the nine months ended September 30, 1996 totaled $1,728,000
and were netted against the reserve for estimated loss on disposition.
As a result of the sale of the Tank Testing Group, the Company intends to
sell its corporate office in Houston, Texas and accordingly the net book value
is classified as "Assets Held for Sale" in the condensed consolidated balance
sheet at September 30, 1996.
3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS:
Additional information regarding accrued liabilities at September 30, 1996
and December 31, 1995 is presented below:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- --------------
(unaudited)
<S> <C> <C>
Accrued liabilities:
Compensation........................ $ 28,820 $ 630,265
Legal............................... 25,159 630,000
Other taxes......................... 77,041 86,019
Other............................... 205,013 206,280
--------------- --------------
Total accrued liabilities..... $ 336,033 $ 1,552,564
=============== ==============
</TABLE>
4. COMMON STOCK AND STOCK OPTIONS:
On January 1, 1996, the Company issued 7,000 shares of Restricted Stock
with a market value of $12,740 to seven directors of the Company, in accordance
with its 1991 Nonemployee Director Plan.
8
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TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. COMMITMENTS AND CONTINGENCIES:
The Company is involved in litigation and routine claims from time to
time. Certain of the Company's litigation and claims are covered by insurance
with a maximum deductible of $150,000, or in some cases, $200,000. In
Management's opinion, the total estimated litigation liability and related
insurance claims are not material to the Company's consolidated financial
position, results of operations or cash flows. In connection with the sale of
the Tank Testing Group, the Company remains liable for certain of this
litigation.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
On October 25, 1996, the Company sold the assets and liabilities of
its three subsidiaries involved in underground storage tank services to NDE
Environmental, Inc. ("NDE"). The subsidiaries that were sold, "the Tank
Testing Group," consist of Tanknology Corporation International including
its cathodic protection division d/b/a Tanknology Cathodic Protection,
USTMAN Industries, Inc., and Tanknology Canada (1988), Inc. The Company
disposed of the Tank Testing Group in consideration of the receipt of
$12,000,000 in cash. The Tank Testing Group had revenues of $6,372,000 and
$17,106,000 for the three and nine months ended September 30, 1996.
Pursuant to the agreement to sell the Tank Testing Group, the Company
will operate under the trade name TEI, Inc. The Company intends to change
its corporate name at the next meeting of shareholders in April 1997.
After the sale of the Tank Testing Group, the Company's continuing
operations consist of Energy Recovery Resources ("ERR"), a wastewater and
waste oil treatment company located in Charlotte, North Carolina. The
Company also owns Engineered Systems, Inc. ("ESI"), based in Tempe,
Arizona. ESI is a provider of fuel system products. The Company elected to
discontinue ESI in December 1995 and is in the process of disposing of ESI.
Following the sale of the Tank Testing Group, the Company has
approximately $30 million in cash, cash equivalents, and marketable
securities. At this time, the Company intends to continue operating ERR
and has no immediate plan for reinvesting these funds into any specific
operating entity; however, management intends to evaluate various
strategies. All excess cash is invested in short-term, interest-bearing,
investment-grade securities, with a minimum criteria of single "A".
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
Revenues from continuing operations declined by 15.9% from $610,000
during the three months ended September 30, 1995 to $513,000 during the
three months ended September 30, 1996. Such decrease is the result of
startup delays at ERR's new wastewater treatment plant in Charlotte, North
Carolina. These delays relate to the construction of the plant, new
equipment installation, and relocation of the machinery from the former
facility to the new processing plant. The new plant is currently in
operation as planned.
Gross profit declined from $256,000 during the third quarter of 1995
to $123,000 during the third quarter of 1996. When measured as a percentage
of revenues, the gross margin dropped from 42.1% during the 1995 period to
23.9% during the 1996 quarter. Corporate general and administrative
expenses will be reduced during future periods to more accurately match the
smaller revenues of the ongoing entity. Both the decline in gross profit
and in gross margin are the result of lower revenues during the 1996 period
and higher operating costs associated with the new and larger plant as
explained above.
Selling, general and administrative expenses increased from $736,000
during the third three month period of 1995 to $895,000 during the same
period in the current year primarily due to the
10
<PAGE>
higher costs associated with the new wastewater treatment plant in
Charlotte. Other income and expense increased to $225,000 during the
July - September 1996 period from $196,000 in the prior year period.
Pursuant to the sale of the Tank Testing Group in October 1996, the
operating results for the Tank Testing Group are included as discontinued
operations for the three and nine month periods ended September 30, 1996
and 1995. The Company will report a gain on the sale of the Tank Testing
Group during the fourth quarter of 1996. Such discontinued operations
recorded net income of $716,000 during the quarter ended September 30,
1996, compared to net income of $575,000 during the prior year period.
During the three months ended September 30, 1996, the Company lost
$312,000 from continuing operations compared to a loss of $209,000 for the
three months ended September 30, 1995. After consideration of gains from
discontinued operations, the Company recorded net income of $404,000 during
the third quarter of 1996, compared to net income of $365,000 during the
third quarter of 1995.
Nine Months Ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995
Revenues from continuing operations declined by 10.7% from $1,811,000
during the nine months ended September 30, 1995, to $1,618,000 during the
nine months ended September 30, 1996. This decrease is due to startup
delays at ERR's new wastewater treatment facility in Charlotte, North
Carolina. These delays relate to the construction of the plant, new
equipment installation, and relocation of the machinery from the former
facility to the new processing plant.
Gross profit dropped from $735,000 in the first three quarters of
1995 to $550,000 during the current year period. When measured as a
percentage of revenues, the gross margin declined from 40.6% during 1995
to 34.0% in the 1996 period. Both the decline in gross profit and in gross
margin are the result of lower revenues and higher operating costs
associated with the new plant during 1996 as explained above.
Selling, general and administrative expenses increased from
$2,464,000 during the first nine months of 1995 to $2,643,000 during the
comparable 1996 period. This increase is attributable to the addition of
new sales and management personnel and other relocation costs associated
with the new wastewater treatment plant. Other income and expense,
consisting mainly of interest earned on the Company's investments, and
gains and losses on the disposition of fixed assets grew from $533,000
during the first nine months of 1995 to $714,00 during the same period in
1996 reflecting an increase in the amount invested in 1996 versus 1995.
During the first three quarters of 1996, the Tank Testing Group
earned $992,000 compared to $1,283,000 during the same period in 1995. The
operating results of the Tank Testing Group are reported as discontinued
operations for the nine months ended September 30, 1996 and 1995. Also
included as discontinued operations are the Company's Engineered Systems,
Inc. ("ESI") and Mankoff, Inc. ("Mankoff") subsidiaries. ESI and Mankoff
reported no income or loss from discontinued operations during the first
nine months of 1996, compared to a loss of $5,557,000 during the 1995
period.
During the nine months ended September 30, 1996, the Company recorded
a net loss from continuing operations of $708,000 compared to a loss of
$737,000 for the nine months ended
11
<PAGE>
September 30, 1995. After consideration of net income totaling $992,000
from the discontinued operations of the Tank Testing Group, the Company
recorded net income of $284,000 during the first nine months of 1996.
During the first nine months of 1995, the Company recorded a net loss of
$5,011,000 including losses from discontinued operations of $4,274,000.
ESI is working off of its existing contracts and lost $1,728,000
during the first three quarters of 1996. The Company is in the process of
disposing of ESI.
Liquidity and Capital Resources
At September 30, 1996, the Company had cash, cash equivalents and
short-term investments of $17,923,000. Additionally, on October 25, 1996,
pursuant to the stock purchase agreement wherein the Company sold the Tank
Testing Group to NDE, the Company received cash proceeds of $12,000,000.
For the nine months ended September 30, 1996, net cash flow from
operations totaled $1,013,000 versus $3,784,000 during the same period in
1995. The decline in cash flow resulted principally from a decrease in
earnings from continuing operations before interest, taxes, and
depreciation of approximately $1,650,000 and a large reduction of accounts
receivable in 1995 that increased cash flow for that period. The decline
in prior year accounts receivable is due to the decrease in revenues from
the three months ended September 30, 1995 to the three months ended
September 30, 1996.
Capital expenditures for the first three quarters of 1996 totaled
$1,933,000, compared to $1,107,000 during the first three quarters of 1995.
Expenditures in both periods are mainly for the construction of a new
facility that expanded the Company's wastewater treatment capacity at its
ERR subsidiary.
Capital expenditures for the next twelve months are expected to be
approximately $500,000, primarily for the purchase and construction of
machinery and the expansion of the Company's wastewater treatment capacity
at ERR. Possible additional expenditures to buy back the Company's Common
Stock and to acquire new businesses are not expected to exceed $10 million
during the next year. The Company expects to be able to finance its working
capital requirements and future acquisitions during the next twelve months
through its cash flow from operations, cash and cash equivalents, and
short-term investments.
Accounting Standards
Effective January 1, 1996, the Company adopted SFAS No. 121, entitled
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of." The effect of this adoption was not material to
the Company's financial position or results of operations.
The Financial Accounting Standards Board issued SFAS No. 123,
entitled "Accounting for Stock-Based Compensation," in October 1995.
Effective January 1, 1996, the Company has elected to adopt the disclosure
requirements of SFAS No. 123.
Forward-looking Information
Statements contained in this Form 10-Q for the quarter ended
September 30, 1996, that are not historical facts, including, but not
limited to, statements found in this Item 2. Management's
12
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations,
are forward-looking statements and involve a number of risks and
uncertainties. The actual results of the future events described in such
forward-looking statements in this Form 10-Q could differ materially from
those stated in such forward-looking statements. Among the factors that
could cause actual results to differ materially are: adverse industry
conditions, industry competition and other competitive factors, government
regulation and possible future litigation, loss of material customers,
seasonality of business, the termination of key license agreements, as well
as the risks and uncertainties discussed in this Form 10-Q.
13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation and routine claims from time to
time. Certain of the Company's litigation and claims are covered by insurance
with a maximum deductible of $150,000, or in some cases, $200,000. In
Management's opinion, the total estimated litigation liability and related
insurance claims are not material to the Company's consolidated financial
position, results of operations, or cash flows. In connection with the sale of
the Tank Testing Group, the Company remains liable for certain of the
litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
three-month period ended September 30, 1996.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) Exhibits:
Exhibit 11.1A Computation of Earnings Per Common Share for the
Three and Nine Months Ended September 30, 1996
and 1995.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on November 12, 1996, that listed the
Company's sale of its three subsidiaries involved in underground
storage tank services to NDE Environmental, Inc.
</TABLE>
14
<PAGE>
PART III.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TANKNOLOGY ENVIRONMENTAL, INC.
By /s/ RICK BERRY
-----------------------------
Rick Berry
Executive Vice President,
Chief Financial Officer and
Treasurer
Date November 12, 1996
-----------------------------
By /s/DONALD R. CAMPBELL
-----------------------------
Donald R. Campbell
President,
Chief Executive Officer and
Chief Operating Officer
Date November 12, 1996
-----------------------------
15
<PAGE>
Exhibit 11.1A
TANKNOLOGY ENVIRONMENTAL, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
for the Three and Nine Months Ended September 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Computation of earnings per common share for the three
months ended September 30:
Net income applicable to common stock........................... $ 404,161 $ 365,499
============== ==============
Weighted average number of common shares outstanding............ 14,237,012 14,230,012
Common shares issuable under employee stock option plan......... -- --
Less shares assumed repurchased with proceeds................... -- --
-------------- --------------
Weighted average common shares outstanding.................. 14,237,012 14,230,012
============== ==============
Net earnings per common share......................... $ 0.03 $ 0.03
============== ==============
1996 1995
-------------- --------------
Computation of earnings (loss) per common share for the nine
months ended September 30:
Net income (loss) applicable to common stock.................... $ 283,863 $ (5,011,356)
============== ==============
Weighted average number of common shares outstanding............ 14,237,012 14,230,012
Common shares issuable under employee stock option plan......... -- --
Less shares assumed repurchased with proceeds................... -- --
-------------- --------------
Weighted average common shares outstanding.................. 14,237,012 14,230,012
============== ==============
Earnings (loss) per common share...................... $ 0.02 $ (0.35)
============== ==============
</TABLE>
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tanknology
Environmental, Inc.'s financial statements as of and for the nine month period
ended September 30, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000867888
<NAME> Rick Berry
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,790,020
<SECURITIES> 2,132,727
<RECEIVABLES> 470,040
<ALLOWANCES> 21,519
<INVENTORY> 38,086
<CURRENT-ASSETS> 21,753,149
<PP&E> 4,974,437
<DEPRECIATION> 578,203
<TOTAL-ASSETS> 40,440,782
<CURRENT-LIABILITIES> 479,046
<BONDS> 0
0
0
<COMMON> 151,922
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,440,782
<SALES> 0
<TOTAL-REVENUES> 1,617,661
<CGS> 1,068,065
<TOTAL-COSTS> 3,710,741
<OTHER-EXPENSES> (23,027)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (691,115)
<INCOME-PRETAX> (1,378,938)
<INCOME-TAX> (670,381)
<INCOME-CONTINUING> (708,557)
<DISCONTINUED> 992,420
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,863
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
